What are the pros and cons of investing in crypto?

As a newer investment, cryptocurrency has gotten a lot of buzz. It has received celebrity endorsements, helped a select few get rich quick and made headlines for various scams and fraud in the industry.

Soon, cryptocurrency may move even further into the spotlight, as President-elect Donald Trump has promised pro-crypto policy when he takes office for his second term. “Since Donald Trump was elected president last month, the price of Bitcoin has smashed through the $100,000 barrier — hitting a record high of $103,259 on [Dec. 4], a nearly 50% gain since Nov. 5 — in large part because of the president-elect’s perceived cryptophilia,” said Barron’s.

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It offers diversification. One potential benefit of crypto for your portfolio is that owning some “can increase your portfolio’s diversification since cryptocurrencies such as Bitcoin have historically shown few price correlations with the U.S. stock market,” said The Motley Fool. Diversification is key when investing, as it spreads your portfolio across a number of different types of assets, buffering against market volatility.

It is accessible. Another benefit of crypto is that it “can be easily accessible to everyone around the clock, even those without access to traditional banking,” whether due to a checkered banking history, lack of documentation or lack of proximity to bank branches, said Fidelity. Further, “crypto transactions can have lower fees and faster transfer times than some traditional bank transactions.”

It is extremely volatile. While risk of loss is possible with any type of investment,” crypto’s elevated volatility makes it an even bigger risk factor,” said Forbes. As just one example, “Bitcoin has experienced rapid surges and crashes in its value, climbing to nearly $65,000 in November 2021 before dropping to just over $20,000 a year and a half later,” said Investopedia. Further, said Bankrate, since cryptocurrencies “aren’t backed by anything,” that means “the price they trade at is determined by the whims of traders.”

It is susceptible to hacks and scams. Fraud and hacks are both common with crypto. That is because “though cryptocurrency blockchains are highly secure, off-chain crypto-related key storage repositories, such as exchanges and wallets, can be hacked,” said Investopedia. In the past, many exchanges and wallets have been hacked, “sometimes resulting in the theft of millions of dollars in coins.” Plus, said Bankrate, “it is often difficult to recover stolen funds.”

It lacks government regulation. While some may see it as an upside that crypto is largely unregulated, that can bring some downsides as well. “Governments around the world have not yet fully reckoned with how to handle cryptocurrency, so regulatory changes and crackdowns have the potential to affect the market in unpredictable ways,” said NerdWallet. Leaving crypto unregulated also puts “investors at risk of market manipulation and fraud,” said The Wall Street Journal.

It has a major environmental impact. Crypto is often made through mining, which “involves solving complex mathematical problems to verify transactions and create new blocks in the blockchain,” said Credit Karma. This “requires lots of computational power, which in turn requires a large amount of energy.” In fact, according to “a comparison by the University of Cambridge,” said NerdWallet, “worldwide Bitcoin mining consumes more than twice as much power as all U.S. residential lighting.”

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What are the pros and cons of investing in crypto?

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